Managing the indirect tax implications of Brexit

Tanya Mcilwain, VAT director at Scott-Moncrieff outlines some of the indirect tax implications Brexit could have on businesses and suggests what can be done now to manage them

Following the Prime Minister’s January speech on the Government’s approach to Brexit, businesses can now start to consider what it means for them. In terms of indirect tax, businesses that buy from, or sell to, EU countries could be significantly affected.

Theresa May confirmed the intention to leave the single market and the customs union, and said she hopes to come to an arrangement on customs issues. She indicated that EU law would be implemented into UK law (to the extent it is not already). This means that the VAT and customs rules that are already in place will remain, unless Parliament decides otherwise.

With this in mind, businesses transacting with other EU countries should consider the following post-Brexit points:

The movement of goods between EU countries is likely to be classified as imports and exports rather than intra-EU movements. This could result in extra administration, delays and cost. While customs agents expect to clear goods within an hour or two of them arriving at a border, the import/export procedure can sometimes add days to the process. Negatives could be mitigated if the Government negotiates a beneficial customs agreement, however, it is still an issue businesses should be aware of.

In theory, customs duties will need to be charged on goods coming into the UK from EU countries (and when UK goods arrive in other EU countries). This will add an extra cost as customs duties are irrecoverable. The UK Government will be hoping for successful trade negotiations that result in low, or no, custom duties. Again, this is another area for businesses to look out for.

At present, the impact on cross-border services is expected to be minimised, except for certain activities.Businesses with VAT registrations in other EU countries may need to appoint a fiscal representative in those countries, rather than carrying out compliance completely by themselves.

From a practical point of view, businesses that buy and sell goods with EU countries should:

Review their supply chain and confirm what the potential impact will be for them. Could changes be made to provide savings or efficiencies?

Review the set-up of their Enterprise Resource Planning (ERP) system. Does it capture data such as commodity codes and country of origin for each product and is this information readily available? This data is important as it determines the rate of customs duty and indicates whether any preferential treatment is available. Invoice templates will need to be amended.

Take into account extra costs. Customs duty is irrecoverable and will affect sales prices and profit margins. As VAT is charged on duty-inclusive amounts, businesses that cannot recover all of the VAT incurred on imported goods will suffer an extra VAT cost.

Consider cash flow. In principle, import taxes must be paid before goods are cleared for import, however you could use one of the available customs reliefs to suspend or defer it.